HSBC Prepares Regular Buybacks -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 1, 2017).

LONDON -- HSBC Holdings PLC said it would regularly buy back shares if it has extra capital, in the latest sign of strength from the global banking giant.

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HSBC said Monday it will buy back another $2 billion in shares, adding to the $3.5 billion stock it repurchased since last year. The transaction announced Monday is part of a new pledge by the bank to regularly buy back shares if it can, in contrast to the earlier purchases that were specifically linked to capital it freed up by selling its large Brazilian unit.

Chief Executive Stuart Gulliver said HSBC will review potential buybacks every half year, and go ahead with them if it has surplus equity and nothing more attractive to invest in. The bank has been adding capital through profit, as well as by shrinking in some areas, and analysts had expected more cash returns. Factors helping the bank in recent quarters include lower bad loans and rising interest rates on an expanding deposit base. HSBC has also been freeing up capital from its defunct U.S. consumer lending business.

On Monday, the bank said net profit for the second quarter rose 57% to $3.87 billion from $2.47 billion in the same period a year earlier. Its profit before tax for the period rose 47% to $5.3 billion.

Mr. Gulliver in an interview said the bank is seeing the fruits of the strategy he laid out in June 2015, including getting more cross-unit business from its 38 million customers. Revenue that can be attributed to such cross-selling rose to $5.9 billion in the second half from $5 billion in the first half of 2016, he said.

Analysts covering banks such as HSBC, J.P. Morgan and Citigroup Inc. have sought proof that the universal banking model is suited for an industry hobbled by banking rules and capital charges since the financial crisis. HSBC says its global reach should be a magnet for companies looking to trade or invest overseas, and it can do anything from managing their cash to helping them tap capital markets, all supported by a strong retail brand and private bank. At the 2015 strategy day, Mr. Gulliver laid out an aim to get revenue growth in its international network above GDP, and said he tracks the estimated figure every two weeks.

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"It's an obsession because we need to prove the logic of the network that comes from referrals going between the three global business," Mr. Gulliver said.

"Global banking and markets ought to be taking commercial clients to the high-yield bond market, and retail ought to be introducing high-end premier accounts to the private bank," he said.

Showing the strategy is working is crucial to Mr. Gulliver's legacy building at HSBC. The revamp he and Chairman Douglas Flint started in 2011 involved exiting dozens of businesses and swaths of the world, and marked a U-turn for HSBC after a stint of unbridled growth. Mr. Flint is leaving in September and will be replaced by Mark Tucker, former CEO of AIA Group Ltd. Mr. Gulliver has said he would leave next year after a new CEO is named.

For the first half, revenue fell 11% to $26.2 billion from $29.47 billion a year ago. The bank said after stripping out the bank's sold Brazil unit and other one-offs, revenue was up 3%, mainly from higher revenue on customer deposits. Net profit in the period was $7 billion, up 10% from $6.36 billion a year earlier.

Write to Margot Patrick at margot.patrick@wsj.com and Joanne Chiu at joanne.chiu@wsj.com